US job growth strong in October, but cracks emerging | Business and Economy News

U.S. job growth rose more than expected in October, but the pace is slowing and the unemployment rate rose to 3.7%, suggesting easing labor market conditions, which would allow the Federal Reserve to move to lower interest rate hikes starting in December.

The Labor Department’s closely watched unemployment report on Friday also showed annual wages rising at their slowest pace in just over a year last month. Household employment fell and the employment-to-population ratio, considered a measure of an economy’s ability to create jobs, for prime-age workers fell the most in 2.5 years.

“The foundation of the labor market strength story fades a bit when you pull back the tarp and take a closer look at the details,” said Christopher Rupkey, chief economist at FWDBONDS in New York. “The report before us seems to indicate that payroll employment growth will weaken in the months ahead as businesses batten down the hatches as the Fed continues to reduce the impact of the economy.”

The establishment survey showed nonfarm payrolls rose by 261,000 last month, the smallest increase since December 2020. Data for September has been revised up to show 315,000 jobs added instead of 263,000 as previously reported.

Job growth has averaged 407,000 a month this year from 562,000 in 2021. Economists polled by Reuters had forecast 200,000 jobs, with estimates ranging from 120,000 to 300,000. Still, the labor market work remains tense, with 1.9 job offers per unemployed person at the end of September.

The Fed delivered on Wednesday further interest rate hike of 0.75% and said its fight against inflation would require a further increase in borrowing costs. But the U.S. central bank has signaled it may be approaching an inflection point in what has become the fastest monetary policy tightening in 40 years.

Last month’s broad-based increase in hiring was led by health care, which added 53,000 jobs. The payroll for professional and technical services increased by 43,000 jobs.

Manufacturing employment increased by 32,000, while leisure and hospitality added 35,000. Leisure and hospitality employment remained at 1.1 million jobs below its pre-pandemic level. The sector had the most job vacancies.

Government payrolls rebounded by 28,000 jobs. Moderate employment gains were seen in interest rate sensitive sectors such as financial activities and retail trade. Construction payrolls barely increased, while transportation and warehousing added 8,000 jobs.

Hiring continues to catch up

Betsey Stevenson, a University of Michigan economist and economic adviser to President Barack Obama, noted that more than half of net hires last month were in sectors — health care, education, restaurants and hotels, for example — that seem still be making up for the steep job losses they suffered during the pandemic recession. Hiring in these sectors will likely continue, she suggested, even if the economy slows.

The “birth-death” model, which the government uses to estimate the number of businesses created or destroyed, showed an increase in estimates of new business creation, which some economists say could have artificially increased the wage bill.

The birth-death addition factor at the unadjusted payroll level was 455,000, surpassing the previous October high of 363,000 in 2021.

“That’s well above the 18-year average of 140,000,” said Sarah House, senior economist at Wells Fargo in Charlotte, North Carolina.

Others, however, were skeptical, noting that the important birth-to-death factor followed a drop of 172,000 in September.

Stocks on Wall Street were tightly mixed. The dollar fell against a basket of currencies. US Treasury prices were mixed.

Labor market slowdown

Job growth has continued as businesses replace workers who have left. But with rising recession risks due to higher borrowing costs, this practice may soon come to an end. A survey by the Institute for Supply Management on Thursday found that some service-sector companies are “holding back from filling vacancies” due to uncertain economic conditions.

The average hourly wage rose 0.4% after rising 0.3% in September. Wages rose 4.7% year-on-year, the smallest gain since August 2021, after rising 5% in September, with large increases from last year excluded from the calculation.

Other wage measures also came out of the boil, which bodes well for the inflation outlook. Inflation data next week is expected to show annual consumer price inflation slowing to less than 8% for the first time this year.

But with inflation shifting towards services, the battle against rising prices will be a long one.

Details of the household survey from which the unemployment rate is derived were poor. The 3.5% increase in the unemployment rate in September reflected a drop of 328,000 household jobs. The ranks of the unemployed increased by 306,000.

“While there is a slowdown in the pace of labor market activity, this slowdown has been far too gradual and today’s report leaves the Fed on track to increase by at least 50 basis points at next month’s meeting,” said Michael Feroli, chief U.S. economist at JPMorgan. At New York.

About 22,000 people dropped out of the labor force, pushing the participation rate, or the proportion of working-age Americans who have or are looking for a job, to 62.2% from 62.3% in September.

There is also an increase in the number of unemployed 27 weeks and over. But the number of people working part-time for economic reasons has decreased.

The employment-to-population ratio for workers in the 25-54 age group fell by 0.4 percentage points to 79.8%. The drop was the largest since April 2020.

The rate at which the unemployed find jobs slowed to 26.7% from 28.6% in September.

“There are very clear signs of a downturn, and it could be a moderation, but depending on a variety of factors, that moderation can turn into a deterioration,” said Nick Bunker, head of economic research at the Indeed Hiring Lab. “The hope is that the labor market will just return to a more normal pace, rather than sitting in the water.”